Vertex-based AO can be good if the tech calculates it either on-the-fly, or else pre-calculates the AO for particular poses of the character (arms up vs. arms down, etc.) and interpolates those vertex colors as the character moves from pose to pose. That can actually look pretty good, if the character is decently…
Vertex color is simply more efficient than adding lightmap bitmaps. The bitmaps have to be loaded into video memory, takes time (very little, but loading/unloading them can cause slowdowns/glitches as you move around) and they eat up space that you want to use for higher-res textures. You usually can't bake AO into enviro…